Substantial costs awards may deter weak or vexatious claims brought purely with the aim of a financial settlement

Employers sometimes find themselves forced to incur significant legal fees defending claims that they believe should not even make it through a first paper-sift. So, no doubt there was much employer rejoicing at recent reports of a record £100,000 costs award against a claimant whose discrimination complaints were found to be false.

Tribunals are generally reluctant to make costs awards even though it is a common employer tactic to threaten costs against claimants in order to discourage them from pursuing a claim, but the general rule in tribunal litigation is that each side bears its own costs, regardless of the outcome. In Gee v Shell the Court of Appeal noted that costs awards are the exception rather than the rule.

The fairly limited circumstances in which a tribunal can make a costs award against a claimant include:

delaying a hearing or failing to comply with a tribunal direction

acting vexatiously, abusively, disruptively or otherwise unreasonably

bringing a claim which is misconceived.

Vexatious claims tend to be those brought solely with the objective of extracting a financial settlement from the respondent; the claimant does not intend to end up in a tribunal and gambles that the respondent will settle rather than spend the time and money fighting the claim. A misconceived claim is so weak it has no reasonable prospect of success. Often the two go hand-in-hand.

So, what reason did the tribunal have for making such a high costs award in this case? The claimant brought claims of sexual harassment, victimisation and direct discrimination. The claim for harassment was out of time (but the tribunal felt it would not have been successful even if it had been submitted in time), and the claims for direct discrimination and victimisation were "not well-founded" and dismissed. Smith was a "very poor witness" in the tribunal's judgment, whose evidence was "exaggerated" and "inconsistent", undermining her credibility.

Even more damningly, the tribunal found she had "re-written history", fabricated certain accusations against her former boss, and made other complaints in bad faith. On the back of such findings, the employer was in a strong position to argue that Smith should pay substantial costs: her claim was clearly vexatious and/or misconceived.

From a commercial perspective, it is often sensible for employers to settle at an early stage, but this can send the wrong message to staff and result in a raft of weak claims brought purely with the aim of a financial settlement. The Government recognises the need to balance the rights of employees with reducing the cost to employers and, through its consultation on "Resolving workplace disputes" earlier this year, is considering options that neither stymie the ability of employees to sue when their employment rights have been infringed nor discourages businesses from recruiting.

One such option involves increasing the amount of costs the employer can recover from an unsuccessful claimant. Over 60 per cent of respondents in a survey of our clients felt this was likely to result in the early settlement of claims. It does seem unlikely that employees will bring a borderline case that might cost them £100,000 if they lose.